Nonunion production, clerical, and middle management employees of the Intersect Corporation participate in a postretirement benefit plan that encompasses health care, housing subsidies, and tuition benefits for surviving dependent children. Recent newspaper accounts indicate that the employment contract covering production employees will expire soon after the balance sheet date. In discussing the disclosures necessary to comply with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," Intersect's chief financial officer tells the auditor that, although she plans to comply with SFAS No. 106, she does not plan to disclose that the health care plan is unfunded.

Required:

1. Explain why you think Intersect's chief financial officer would prefer not to disclose that the health care plan is unfunded.

2. Does failing to disclose that a health care plan is unfunded violate generally accepted accounting principles?